Buy The Weakness In Netflix Shares, Says JPMorgan

Following the robust 1Q results reported by Netflix, Inc. NFLX and the better-than-anticipated 2Q guidance, JPMorgan’s Doug Anmuth recommends buying the weakness in the stock.

Anmuth maintained an Overweight rating on the company, while lowering the price target from $139 to $126.

Better Than Expected

Anmuth explained that while the international net adds guidance for 2Q, at 2 million, appears light, Netflix has usually seen seasonality in 2Q, with a 44 percent decline in net adds on an average during 2012–2014.

The analyst mentioned that the better than expected guidance and the robust US streaming subscriptions in 1Q, despite ungrandfathering, should ease near term concerns regarding maturation of the domestic market and the company’s pricing power.

Related Link: Morgan Stanley Encouraged By Netflix's Ability To Grow Subscribers With Original Content

Strong 1Q

The company reported 24 percent year-on-year growth in revenue for 1Q, although it was 1 percent below the consensus and estimate. Domestic streaming revenue also came in marginally below the estimate, although there was 18 percent year-on-year growth.

Anmuth pointed out that strong original content led to U.S. net adds of 2.23 million, above the estimate, despite the domestic ASP missing the estimate.

International streaming revenue say 57 percent year-on-year growth, although international ASPs were impacted by FX headwinds.

Both international and domestic net adds beat the guidance, while operating income was in line with the guidance.

The 2016 net adds estimate has been raised 15 percent for the United States and revised down 7 percent for the international markets.